UBS said second-quarter profit fell 14 percent on the year. The Swiss bank's flagship wealth management operations posted a drop in income and pretax profit, thinner margins, and missed a target for fresh client money.

The Zurich-based bank's profit to shareholders was 1.034 billion Swiss francs in the second quarter, beating analyst expectations, which averaged 707 million francs.

This was due in large part to UBS cutting spending by 2 percent on the year to partially offset a drop in revenue. The bank said it is 1.4 billion francs towards a target to axe costs by a total of 2.1 billion francs next year.

Private Bank Misses

«This performance was achieved against the backdrop of continued economic and heightened geopolitical uncertainty, which led to ongoing and pronounced low client activity, and subdued primary market issuance,« UBS said.

The rise in profit masked a poor performance at its main unit, private banking. The business won just 6 billion francs from clients in net new money, a widely-watched indicator for future business. This translates to 2.6 percent growth, missing UBS' target of at least 3 percent.

Outlook Downcast

The fresh funds came mainly from Asia-Pacific and Switzerland, and were partially offset by outflows in emerging markets and in Europe, where tax amnesties have put pressure on clients to close out their hidden offshore accounts.

The private bank's margin dropped to 78 basis points, and the unit failed to cut spending at the same pace as revenue from fees and commissions fell because clients were «subdued» in activity.

Like crosstown rival Credit Suisse on Thursday, UBS also issued a reserved outlook. The bank said that Britain's vote to leave the European Union has worsened client angst, something that is «unlikely to change in the foreseeable future.»

«Even a Moderate Improvement»

The bank said it is grappling with the effect of negative interest rates and with the strong Swiss franc against the euro, and expects tougher Swiss banking regulation to pile costs on further.

«UBS is well positioned to benefit from even a moderate improvement in conditions and remains committed to executing its strategy with discipline to mitigate these effects,» the bank said.

Brexit and FX Trading

Pretax profit at UBS' investment bank shrank by nearly half on the year, but rose 12 percent on the quarter.

Revenue and spending rose in equal measure, and an expected surge in revenue from foreign exchange trading following the Brexit vote last month underpinned revenue.

The bank's overall ratio of «hard» capital improved by 20 basis points to 14.2 percent in the quarter.